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Has Core Inflation Been Doing a Good Job in Brazil?

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  • Tito Nícias Teixeira da Silva Filho
  • Francisco Marcos Rodrigues Figueiredo

Abstract

This paper assesses the performance of the core inflation measures calculated by the Brazilian Central Bank (BCB). The evidence shows that they do not meet some key statistical criteria that a good core inflation should have: unbiasedness and the ability to forecast inflation. That performance stems, to a large extent, from the lack of a well-grounded statistical and economical basis behind them. Three new measures are built and assessed using the same criteria. The evidence shows that their behaviour is more in accordance to what the theory claims. However, they still lack the ability to help forecasting inflation. Hence both the BCB and the market should use core inflation cautiously.

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Bibliographic Info

Article provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its journal Revista Brasileira de Economia.

Volume (Year): 65 (2011)
Issue (Month): 2 (June)
Pages: 207-233

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Handle: RePEc:fgv:epgrbe:v:65:n:2:a:5

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References

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  1. Danny Quah & Danny Quah & Shaun P. Vahey, 1995. "Measuring Core Inflation," CEP Discussion Papers dp0254, Centre for Economic Performance, LSE.
  2. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
  3. Pedro Duarte Neves & Luís Morais Sarmento & Carlos Robalo Marques, 1999. "Evaluating core inflation indicators," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  4. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
  5. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The Consumer Price Index as a Measure of Inflation," NBER Working Papers 4505, National Bureau of Economic Research, Inc.
  6. Quah, Danny, 1995. "Measuring Core Inflation," CEPR Discussion Papers 1153, C.E.P.R. Discussion Papers.
  7. Pietro Catte & Torsten Sløk, 2005. "Assessing the value of indicators of underlying inflation for monetary policy," OECD Economics Department Working Papers 461, OECD Publishing.
  8. Robert Rich & Charles Steindel, 2005. "A review of core inflation and an evaluation of its measures," Staff Reports 236, Federal Reserve Bank of New York.
  9. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
  10. William T. Gavin & Rachel J. Mandal, 2002. "Predicting inflation: food for thought," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan., pages 4-9.
  11. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  12. Smith, Julie K, 2004. "Weighted Median Inflation: Is This Core Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 253-63, April.
  13. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series 14, Central Bank of Brazil, Research Department.
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Cited by:
  1. Tito Nícias Teixeira da Silva Filho, 2012. "Are Core Inflation Directional Forecasts Informative?," Working Papers Series 266, Central Bank of Brazil, Research Department.

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